Many factors must converge for a Greek economic upturn

When Alternate Finance Minister Giorgos Houliarakis told Parliament last Thursday that the government has “full confidence” in the Hellenic Statistical Authority (ELSTAT), it naturally grabbed all the headlines. His comment appeared to confirm that the coalition is trying to distance itself as much as possible from the revival of allegations against the former ELSTAT chief, Andreas Georgiou, which elicited a forceful reaction from the European Commission a few days ago.

The unequivocal missive from Brussels seemed to be an attempt to convince the Greek government not to offer any kind of support for the new case against Georgiou, who faces fresh charges of having doctored Greece’s 2009 deficit. Naturally, the Commission’s intervention sparked concern about a sour mood developing between Greece and its lenders before the start of the next bailout review.

It is no surprise then that Houliarakis’s clear statement should attract so much attention, especially as it came after the coalition, particularly junior partner Independent Greeks (ANEL), cast doubt on the validity of the 2009 data.

However, this has obscured to a great extent the rest of the alternate minister’s comment, in which he gave a particularly optimistic outlook for the Greek economy. Houliarakis said that Greece came out of its recession in the second quarter of this year and that it is well on its way to beating its primary budget surplus target for the year, which amounts to 0.5 percent of gross domestic product.

This part of his comment deserves closer examination because the Greek economy’s prospects appear less cut-and-dried than was suggested. For instance, although the budget execution so far this year has shown a primary surplus of 3.5 billion euros, which is almost 2.7 billion euros above the original target, state expenditure has been held back considerably and July’s revenues were 336 million euros short of their target.

Equally, although GDP did increase by 0.2 percent quarter-on-quarter in the April-to-June period of this year, it declined by 0.9 percent on a year-on-year basis.

The quarterly figures are perhaps better than some anticipated, but the annual data actually put a damper on things.

Furthermore, the idea that Greece is heading for a convincing economic recovery is challenged by a range of other hard data. Last week, for example, June’s official retail sales figures were published and they showed another month of decline year-on-year.

Although the turnover of the retail trade index contracted at a slower rate year-on-year (by 5.2 percent) in June than in May, its decline meant that it has been falling for 13 months in a row. This is some achievement if one thinks back to the uncertainty of just over a year ago.

This period caps a miserable few years for Greece’s retailers. Since 2010, retail turnover has plummeted by almost 30 percent.

Some retail sectors have been decimated during the crisis, such as furniture and electrical and household goods, where the turnover sank by 51.4 percent in total. Sales of pharmaceutical products and cosmetics have dropped by almost 37 percent.

If you look elsewhere there are other signs that the much-awaited recovery may not be all that it is expected to be. Building activity plunged by 31.5 percent in May and was down 16.5 percent in the first five months of the year on an annual basis.

Industrial turnover fell by 9.4 percent in May year-on-year, keeping the index in negative territory, where it has been since November 2014.

Granted, there was some positive news last week, as factory output was seen rising in August. The Purchasing Managers’ Index (PMI), measured in a monthly survey by Markit, increased to 50.4 points, above the 50-point mark that delineates growth. The breakdown of the figures showed there had been a rise in production, but only for the second time this year. New orders edged up, ending a negative run that had lasted for two years.

“August survey data provided some promising signs that the Greek manufacturing sector could be on the verge of picking up,” said Markit in a comment accompanying the figures, emphasizing the potential for a recovery but also stressing how fragile that potential upturn could be.

There are many elements that will define how robust the expected recovery will be. One of those is Greece’s relationship with its lenders, including how quickly the government will complete the 15 prior actions needed for the release of the next bailout subtranche of 2.8 billion euros and how stress-free the upcoming second review of the program will eventually prove to be.

If Athens is able to sail through these challenges relatively smoothly and quickly, this will perhaps trigger the kind of confidence and positive effects, such as making available another 1.1 billion euros to reduce more than 7 billion of state arrears, that could indeed drive a convincing recovery.

This, though, returns us to the issue of trust between Greece and its creditors. It is clear that the revival of the Georgiou case has cast doubt on whether there can be an atmosphere of cooperation at the moment.

Last week, the International Monetary Fund backed the European Commission’s stance on the matter, furthering speculation that Athens will have to prove it intends to protect the independence of ELSTAT, as well as that of other independent authorities, in order to satisfy its creditors in the coming months.

The Georgiou affair appears to be taking on more than a symbolic importance. By coincidence, The Economist reported last week that China’s corruption watchdog, the Central Commission for Discipline Inspection, charged a former head of the country’s National Bureau of Statistics with “superstitious activities,” among other things.

In Greece’s case, if it wants to rely on more than good fortune to fuel its recovery, it will probably have to find a way to restore the reputation of its own former statistics chief.